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UNIT : 1 INTRODUCTION TO BANKING & BASICS FUNCTIONS OF BANKER

I Choose the correct answer:
1 Banking is defines in….
b) Banking regulation act
2 A bank is a financial intermediary because
b) it acts as the link between the savers and the borrowers
3 Banker-customer relationship starts when
a) A customer open an account
4 RBIs function is
d) All the above
5 Bank’s service include
d) All the above
6 An investment Bank is a bank
c) An intermediary which perform a variety of financial services to
corporate
7 ….……………. are not a part of the scheduled banking structure in india.
a) Money lenders
8 RBIs isn’t expected to perform the role of
d) Accepting deposits from general public
9 Which of the following is a role typically not performed by the central Bank?
b) Establish tax policies
10 Which of the following is not a function of commercial bank?
b) deciding policy rates like CRR, SLR and Repo rate
11 In a commercial banking, who takes the risk while giving the loan?
c) Commercial bank
II Fill in the banks
1 Reserve Bank of India is the Central bank of India.
2 Baning services provided to a common man is known as Retailing banking
3 Reserve Bank Of India Keeps an eye on the overall payment system.
4 RBI is the lender of last resort for the Bank
III Answer in detail:
1 What is the definition of a Bank?
A bank is a financial institution that provides a range of financial services to
individuals, businesses, and governments
2 What is the role of the Bank in the socity?
Banks play several vital roles in society, serving as financial intermediaries that
facilitate economic activities and contribute to overall economic stability. Here
are some of the key roles of banks in society

Financial Intermediation: Banks act as intermediaries between those who

have surplus funds (depositors and investors) and those who need funds
(borrowers). They channel funds from savers to borrowers, which is essential for
economic growth and development.

Capital Allocation: Banks help allocate capital efficiently by assessing the

creditworthiness of borrowers and directing funds to productive investments. This
process supports entrepreneurship, business expansion, and job creation.

Safekeeping of Deposits: Banks offer a secure place for individuals and

businesses to store their money. Deposits are typically insured up to a certain
limit by government agencies, providing confidence and protection to depositors.
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Payment Services: Banks facilitate the movement of money within the
economy by providing various payment services, such as checking accounts, wire
transfers, electronic funds transfers, and credit card processing. These services
are essential for everyday transactions and commerce.
Lending and Credit: Banks provide loans and credit to individuals and
businesses, enabling them to make purchases, invest in homes or businesses,
and smooth out cash flow fluctuations. This access to credit supports
consumption and economic growth.
Interest Rate Determination: Banks influence interest rates through their
lending and deposit activities. Central banks often use interest rates as a tool to
manage inflation and economic stability, making banks crucial in monetary policy
implementation.
Currency Exchange: Banks offer foreign exchange services, allowing individuals
and businesses to buy and sell foreign currencies. This is essential for
international trade and travel.
Wealth Management and Financial Advisory: Many banks offer services to
help individuals and businesses manage their finances, plan for retirement, and
make investment decisions. These services can assist in wealth accumulation and
financial security.
Payment System Infrastructure: Banks are integral to the payment
infrastructure of a country, ensuring that payments are processed efficiently and
securely. This includes clearing checks, settling electronic transactions, and
maintaining payment networks.
Risk Management: Banks help manage financial risks for businesses and
individuals through various financial instruments, such as insurance, derivatives,
and hedging strategies.
Supporting Government Finances: Banks often play a role in underwriting
government bonds and managing government accounts. They help governments
raise funds for public projects and manage their financial operations.
Economic Stability: Banks contribute to economic stability by providing a buffer
against financial shocks and crises. Regulators oversee banks to ensure their
stability and prevent systemic risks to the financial system.
Overall, banks are essential pillars of the modern financial system, supporting
economic growth, financial security, and the efficient functioning of societies by
facilitating the flow of funds and providing a wide range of financial services to
individuals and businesses.

3 What are the function of RBI?

The Reserve Bank of India (RBI) is the central bank of India, and it plays a crucial
role in the country's monetary and financial system. The RBI's functions are
multifaceted and can be categorized into several key areas:

Monetary Policy Formulation and Implementation: One of the primary

functions of the RBI is to formulate and implement monetary policy. This involves
managing the money supply, interest rates, and inflation to achieve the country's
economic objectives, such as price stability, economic growth, and employment
generation. The RBI uses tools like repo rates, reverse repo rates, and open
market operations to influence monetary conditions.

Currency Issuance and Management: The RBI is responsible for issuing and
regulating the currency in India. It ensures an adequate supply of currency notes
and coins in circulation and manages the overall currency system's integrity and
security.
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Banking Regulation and Supervision: The RBI regulates and supervises banks
and financial institutions in India to maintain the stability and integrity of the
banking sector. It enforces prudential norms, licensing, and inspection of banks to
ensure their soundness and compliance with regulatory requirements.
Banker to the Government: The RBI acts as the banker and fiscal agent for the
central and state governments. It manages the government's accounts, facilitates
government borrowing, and conducts government transactions.
Foreign Exchange Management: The RBI manages India's foreign exchange
reserves and regulates foreign exchange transactions. It intervenes in foreign
exchange markets to stabilize the rupee's exchange rate and ensure the
country's external stability.
Payment and Settlement Systems: The RBI plays a crucial role in overseeing
and regulating payment and settlement systems in India. It ensures the efficiency
and security of payment systems, including electronic funds transfers, check
clearing, and digital payment platforms.
Developmental Functions: The RBI also undertakes various developmental
functions aimed at promoting financial inclusion, financial literacy, and the overall
development of the financial sector. It encourages innovation and modernization
in banking and financial services.
Financial Stability and Regulation: The RBI monitors and assesses systemic
risks in the financial system and takes measures to maintain financial stability. It
also formulates and enforces regulations and policies to ensure the health and
resilience of financial institutions.
Data Collection and Research: The RBI collects and publishes a wide range of
economic and financial data. It conducts research and analysis to support
evidence-based policymaking and decision-making in the financial sector.
Consumer Protection: The RBI is responsible for ensuring that consumers of
financial services are protected. It sets guidelines for fair banking practices and
handles complaints related to banking services.
Control of Credit: The RBI exercises control over the expansion of credit in the
economy through various tools and measures. It regulates the flow of credit to
different sectors to maintain financial stability and avoid excessive borrowing.
Promotion of Financial Inclusion: The RBI promotes financial inclusion by
encouraging banks to expand their services to under served and rural areas,
making financial services more accessible to a broader segment of the
population.

The Reserve Bank of India plays a central role in India's economic and financial
system, influencing monetary conditions, regulating the banking sector, and
ensuring the stability and integrity of the country's financial system. Its functions
are aimed at achieving macroeconomic stability, fostering financial sector
development, and serving the interests of the Indian economy and its citizens.

4 Define who is the banker?

A banker is an individual or a financial institution that provides banking services
to customers, including individuals, businesses, and governments. The role of a
banker involves various financial activities, such as accepting deposits, providing
loans and credit, facilitating payments, managing customer accounts, and
offering a range of financial products and services. Bankers play a crucial role in
the economy by facilitating the flow of money and capital, managing financial
transactions, and helping customers with their financial needs.
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Bankers can include:

Commercial Banks: These are traditional banks that provide a wide range of
banking services to individuals and businesses. They accept deposits, offer loans,
and provide various financial products and services.
Savings Banks: Savings banks primarily focus on accepting deposits from
individuals and providing them with savings and investment products. They often
have a retail banking orientation.
Credit Unions: Credit unions are member-owned financial cooperatives that
offer banking services to their members. They typically serve specific
communities or groups of individuals.
Central Banks: Central banks, such as the Federal Reserve in the United States
or the Reserve Bank of India, are government institutions responsible for
regulating the monetary system, managing currency issuance, and often
overseeing the banking sector.
Investment Banks: Investment banks focus on providing financial services to
corporations and governments. They assist with raising capital, mergers and
acquisitions, and other complex financial transactions.
Online Banks: These are banks that operate primarily or exclusively online,
providing banking services over the internet. They often offer competitive
interest rates and lower fees.
Merchant Banks: Merchant banks are involved in trade and finance, helping
businesses with international trade, export and import financing, and investment
activities.
Development Banks: Development banks focus on funding and promoting
economic development and infrastructure projects, often in emerging economies.
Private Banks: Private banks cater to high-net-worth individuals and provide
personalized wealth management and financial advisory services.
Bankers are regulated by government authorities to ensure the safety and
soundness of the financial system and to protect the interests of customers. They
must adhere to various banking regulations and standards to maintain trust and
stability in the financial sector.

5 Explain the function of the Banker.

The function of a banker encompasses a wide range of financial services and
activities that are essential to the smooth functioning of the financial system and
the economy as a whole. Here are the key functions of a banker:

Accepting Deposits: One of the fundamental functions of a banker is to accept

deposits from individuals, businesses, and other entities. Bankers offer various
types of deposit accounts, including savings accounts, checking accounts, fixed
deposits, and certificates of deposit. Customers deposit their money with the
banker, and these funds are held securely and made available for withdrawal or
other financial transactions.

Providing Loans and Credit: Bankers lend money to individuals, businesses,

and governments. They evaluate the creditworthiness of borrowers and provide
loans for various purposes, such as home mortgages, personal loans, business
expansion, and infrastructure projects. By providing credit, bankers play a critical
role in fueling economic growth and development.

Facilitating Payments: Bankers offer payment services that enable individuals

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and businesses to make transactions efficiently and securely. These services
include check clearing, electronic funds transfers, wire transfers, and online
payment systems. Bankers ensure that money moves smoothly within the
financial system.

Safekeeping of Funds: Bankers are responsible for safeguarding the funds

deposited by customers. They maintain the security and integrity of customer
accounts, protecting them from theft, fraud, and unauthorized access. Bank
deposits are often insured up to a certain limit by government agencies to
provide additional protection to depositors.
Currency Exchange: Many bankers offer foreign exchange services, allowing
customers to buy and sell foreign currencies for travel, trade, or investment
purposes. They facilitate currency exchange transactions and provide exchange
rate information.
Wealth Management and Financial Advisory: Some bankers, particularly
private banks and wealth management divisions, offer specialized services to
help individuals and businesses manage and grow their wealth. This includes
investment advisory, asset management, retirement planning, and estate
planning.
Payment Processing: Bankers process various types of payments, including
credit card transactions and merchant services for businesses. They ensure the
secure and efficient transfer of funds between buyers and sellers.
Investment Services: Investment banks and other financial institutions that
operate in the capacity of a banker provide services related to capital markets,
including underwriting securities, facilitating mergers and acquisitions, and
helping companies raise capital through stock and bond offerings.
Central Banking Functions: Central banks, such as the Federal Reserve in the
United States or the European Central Bank, perform specialized functions that
include managing the nation's money supply, regulating banks, and
implementing monetary policy to achieve economic objectives like price stability
and full employment.
Financial Advisory and Research: Bankers often provide financial advisory
services to businesses and governments, offering expertise in areas such as
financing strategies, risk management, and investment decisions. They also
conduct economic research and analysis to inform their clients and stakeholders.
Payment System Infrastructure: Bankers participate in the development and
maintenance of payment system infrastructure, ensuring that transactions are
processed securely and efficiently. They work with other financial institutions and
payment service providers to support payment innovations.
Risk Management: Bankers help customers manage financial risks by offering
products like insurance, derivatives, and hedging services. They assist businesses
and individuals in protecting themselves against various financial uncertainties.

Overall, bankers play a pivotal role in the financial system and the broader
economy by providing financial services that facilitate economic transactions,
promote economic growth, and support the financial well-being of individuals and
businesses. Their functions are vital for the stability and development of
economies worldwide.

6 What are the different types of bank found in India?

India has a diverse banking sector with various types of banks catering to different financial
needs and segments of the population. The major types of banks found in India include:
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Commercial Banks: These are the most common type of banks and offer a wide range of
banking services to individuals and businesses. Commercial banks include both public sector
banks (government-owned) and private sector banks (privately owned). Examples of public
sector banks include State Bank of India (SBI) and Punjab National Bank (PNB), while private
sector banks include ICICI Bank and HDFC Bank.

Savings Banks: Savings banks primarily focus on providing savings and deposit services to
individuals. They often have a retail banking orientation and offer savings accounts with
varying interest rates and features. Some of the larger commercial banks in India also
operate as savings banks.
Cooperative Banks: Cooperative banks are owned and operated by their members, who are
often residents of a particular locality or belong to a specific group. These banks aim to serve
the financial needs of their members and the local community. Cooperative banks can be
further categorized into urban cooperative banks (UCBs) and rural cooperative banks.
Regional Rural Banks (RRBs): RRBs are financial institutions created to promote financial
inclusion in rural areas. They are jointly owned by the central government, state
governments, and sponsor banks (usually commercial banks). RRBs offer banking services in
rural and semi-urban areas, focusing on agricultural and rural development.
Payment Banks: Payment banks are a specialized category of banks that primarily offer
payment and remittance services to customers. They do not provide loans or credit facilities.
Payment banks focus on providing digital and mobile-based payment solutions, making it
easier for people to make transactions.
Small Finance Banks: Small finance banks are specialized banks that cater to the financial
needs of unbanked and underbanked segments of the population. They offer services such as
savings accounts, fixed deposits, small loans, and microfinance. These banks are mandated
to lend a significant portion of their loans to priority sectors, including agriculture and micro,
small, and medium-sized enterprises (MSMEs).
Foreign Banks: Foreign banks are banks that are headquartered outside India but have a
presence in the country. They offer banking services to individuals, businesses, and
corporations, often with a focus on international trade and finance.
Development Banks: Development banks are financial institutions that primarily focus on
funding and promoting economic development and infrastructure projects. They play a
critical role in providing long-term financing for developmental initiatives.
Industrial Banks: Industrial banks provide financial services to industries, focusing on
financing industrial projects, working capital needs, and trade finance. They are essential for
supporting the growth of the industrial sector.
Private Banks: Private banks cater to high-net-worth individuals and offer personalized
wealth management and financial advisory services. These banks focus on managing and
growing the wealth of their affluent clients.
Central Bank: The Reserve Bank of India (RBI) serves as the central bank of India. While it
doesn't provide retail banking services to the public, it plays a crucial role in regulating and
overseeing the entire banking sector, formulating monetary policy, and managing the
country's foreign exchange reserves.

These different types of banks contribute to the diversity and accessibility of banking
services in India, ensuring that a wide range of financial needs and preferences are met
across various segments of the population and sectors of the economy.

Q1 List the functions of RRBs in the development of Economy.

Providing Banking Services: RRBs offer a range of banking services, including

savings accounts, current accounts, fixed deposits, and loans, to the rural
population. This helps in financial inclusion by bringing banking services closer to
people who may not have easy access to traditional banks.
Agricultural Finance: RRBs are instrumental in providing credit facilities to
farmers for various agricultural activities, such as crop cultivation, animal
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husbandry, and agree-allied activities. This supports agricultural development
and enhances farmers' income.

Rural Infrastructure Development: RRBs often participate in financing rural

infrastructure projects like roads, bridges, and irrigation systems. This contributes
to the overall development of rural areas and increases economic productivity.
Promoting Small and Medium Enterprises (SMEs): RRBs extend credit to
small and medium-sized enterprises in rural areas, fostering entrepreneurship
and local economic development.
Financial Inclusion: RRBs help in bringing unbaked and under banked
populations into the formal financial system. They open bank accounts for
marginalized communities and encourage savings habits among rural individuals.
Microfinance: RRBs engage in microfinance activities, offering small loans and
financial services to the rural poor, especially women, to support income-
generating activities and poverty alleviation.
Promoting Self-Help Groups (SHGs): RRBs work with Self-Help Groups by
providing them with credit and financial literacy training, enabling rural women to
collectively save and access loans for income-generating activities.
Remittances: RRBs facilitate the remittance of funds from urban to rural areas,
helping families in rural regions receive financial support from their relatives
working in cities.
Financial Literacy and Awareness: RRBs play a role in educating the rural
population about financial products and services, thereby increasing financial
literacy and promoting responsible financial behavior.
Government Schemes and Initiatives: RRBs often act as intermediaries for
various government schemes and initiatives, disbursing subsidies, pensions, and
other benefits to eligible beneficiaries in rural areas.
Economic Development: By supporting economic activities in rural areas, RRBs
contribute to overall economic development, reduce poverty, and improve the
standard of living in these regions.
Promoting Digital Banking: RRBs are increasingly adopting digital banking
technologies to improve accessibility and convenience for rural customers,
making it easier for them to access banking services.

Q2 State the objectives of nationalization of public sector banks

The nationalization of public sector banks, which took place in India in two phases
(1969 and 1980), was driven by several objectives, primarily aimed at achieving
broader social and economic goals. The key objectives of nationalization of public
sector banks in India were:

Promoting Social Welfare: One of the primary objectives of nationalization was

to ensure that the benefits of banking and credit facilities reached a larger
section of the population, especially in rural and economically weaker sections of
society. This was seen as a means to promote social equity and reduce economic
disparities.
Financial Inclusion: Nationalization aimed to increase financial inclusion by
making banking services more accessible to rural areas and the unbanked
population. It was intended to bring previously excluded segments of society into
the formal banking system.
Credit Allocation to Priority Sectors: Nationalized banks were directed to
allocate a significant portion of their lending to priority sectors like agriculture,
small-scale industries, and exports. This was intended to support the growth of
these sectors and boost overall economic development.
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Control Over Banking Sector: The government sought to exert greater control
over the banking sector to influence monetary policy and ensure stability in the
financial system. Nationalization allowed the government to direct resources to
sectors deemed strategically important for the country's development.
Preventing Concentration of Wealth: Nationalization aimed to prevent the
concentration of economic power in the hands of a few private entities by
bringing the banking industry under public ownership. This was seen as a way to
ensure that banking benefits were distributed more equitably.
Strengthening Banking Infrastructure: Nationalization was expected to lead
to the expansion of banking services, the opening of new branches, and the
improvement of banking infrastructure in rural and semi-urban areas, thereby
fostering economic growth and development in these regions.
Control of Capital Flow: The government wanted to control the flow of capital
in the economy to ensure that it was directed towards sectors that served the
national interest and development goals.
Promoting Monetary Policy Objectives: Nationalized banks were expected to
play a pivotal role in implementing the government's monetary policy, including
measures to control inflation and manage interest rates.
Ensuring Stability: Nationalization aimed to ensure the stability of the banking
sector by reducing the risk of bank failures and panics, which could have a
detrimental impact on the overall economy.
Rural Development: The nationalization of banks was also seen as a means to
support rural development by providing credit for agriculture and rural
infrastructure projects.

Q.3 State any 3 initiative taken by RBI in improving the payment mechanism.
The Reserve Bank of India (RBI) has taken several initiatives to improve the
payment mechanism in the country. Here are three notable initiatives:

Real-Time Gross Settlement (RTGS) System:

 RTGS is a funds transfer system introduced by RBI to enable real-time, one-

to-one electronic fund transfers. It ensures secure and instantaneous
settlement of high-value transactions.
 RBI has continuously upgraded and expanded the RTGS system to improve
its efficiency and reduce transaction settlement times. In 2021, it made
RTGS available 24x7, allowing users to initiate high-value transactions at
any time.
Unified Payments Interface (UPI):

 UPI is a revolutionary payment system launched by the National Payments

Corporation of India (NPCI) with the guidance of RBI. It allows users to make
instant and interbank fund transfers using a mobile app.
 RBI played a crucial role in promoting and regulating UPI, ensuring its
security and interoperability. The introduction of UPI has transformed the
digital payments landscape in India, making it convenient for individuals
and businesses to transfer funds electronically.

Payment and Settlement Systems Act, 2007:

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 RBI introduced the Payment and Settlement Systems Act, 2007, which
provided a legal framework for the regulation and supervision of payment
systems in India.
 This act empowers RBI to regulate and oversee payment system operators,
ensuring the safety and efficiency of payment systems and promoting
innovation in the payments space.

These initiatives have significantly improved the payment mechanism in India,

making it more efficient, secure, and accessible to a larger portion of the
population. They have also facilitated the growth of digital payments, reducing
the reliance on cash transactions and enhancing financial inclusion.

Q.4 What is the role laid by co-operative banks in the society.

Co-operative banks play a vital role in society by serving as financial institutions
with a distinct cooperative structure and focus on community development. Their
role encompasses several important functions and contributions, which include:

Financial Inclusion: Co-operative banks often target underserved and

economically weaker sections of society. They provide access to banking services
and credit facilities to people who may not have access to traditional commercial
banks. This helps promote financial inclusion and reduces the disparity in access
to financial services.
Supporting Agriculture and Rural Development: Many co-operative banks
have a strong presence in rural areas and play a crucial role in providing
agricultural credit. They offer loans to farmers for crop cultivation, purchase of
equipment, and other agricultural activities, thereby contributing to agricultural
development and food security.
Promoting Small and Medium Enterprises (SMEs): Co-operative banks often
support small and medium-sized enterprises (SMEs) by providing them with loans
and financial services. This helps in fostering entrepreneurship, job creation, and
local economic development.
Savings and Deposits: Co-operative banks offer savings and deposit accounts
to individuals and businesses, encouraging savings habits and providing a safe
place for people to keep their money.
Credit for Housing and Education: Some co-operative banks offer housing and
education loans at competitive rates, making it easier for individuals to buy
homes and pursue higher education.
Community Development: Co-operative banks typically have a strong
community focus. They may invest in local infrastructure development, support
charitable causes, and engage in community-building activities, which contribute
to the overall development of the areas they serve.
Promoting Self-Help Groups (SHGs): Co-operative banks often work with Self-
Help Groups (SHGs) by providing them with credit and financial literacy training.
This empowers women and marginalized communities to save and access loans
for income-generating activities.
Democratic Governance: Co-operative banks are owned and controlled by their
members, who have a say in the bank's operations and policies. This democratic
structure ensures that the bank's activities align with the needs and preferences
of the local community.
Stability and Trust: Co-operative banks are often seen as trustworthy
institutions deeply rooted in their communities. Their focus on local needs and
values can instill a sense of trust and stability among their members.
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Support During Emergencies: Co-operative banks may provide financial

support to members during times of crisis or emergencies, helping them cope
with unforeseen circumstances.
Financial Education and Literacy: Many co-operative banks engage in
financial education and literacy programs to empower their members with
knowledge about responsible financial management.
In summary, co-operative banks serve as essential financial intermediaries that
prioritize community development and financial inclusion. Their focus on local
needs and their democratic structure enable them to contribute significantly to
the social and economic well-being of the communities they serve.

Q. 5 Explain any 3 reasons why an individuals need bank

Individuals need banks for a variety of reasons, ranging from managing their
finances to achieving long-term financial goals. Here are three key reasons why
individuals need banks:

Safe Storage of Funds: Banks provide a secure and safe place for individuals to
store their money. Instead of keeping large sums of cash at home, individuals can
deposit their money into bank accounts. Banks offer various types of accounts,
such as savings and checking accounts, that provide a level of security that cash
cannot match. These accounts are insured by government-backed agencies in
many countries, providing an additional layer of protection for deposited funds.

Access to Payment Services: Banks offer a wide range of payment services

that facilitate financial transactions. These services include:

Checking Accounts: These accounts allow individuals to write checks,

make electronic transfers, and use debit cards to pay bills and make purchases.
Checking accounts provide a convenient way to manage day-to-day expenses.


Online and Mobile Banking: Banks offer online and mobile banking
platforms that enable individuals to check their account balances, transfer
money, pay bills, and conduct various financial transactions from the
comfort of their homes or using mobile devices.


ATMs: Banks maintain networks of ATMs (Automated Teller Machines) that
allow customers to withdraw cash, check balances, and perform other
banking tasks 24/7.


Wire Transfers: Banks facilitate domestic and international wire transfers,
which are essential for sending money across borders or for making large
transactions.


Borrowing and Financial Services: Banks provide individuals with access to

credit and a range of financial services:


Loans and Credit: Banks offer various types of loans, including personal
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loans, home loans, car loans, and credit cards. These credit options allow
individuals to finance major purchases, cover unexpected expenses, or
invest in education.


Interest on Savings: Many banks pay interest on savings account
balances, helping individuals grow their wealth over time. This interest can
be an important source of passive income.


Investment Services: Banks often provide investment products and
services, such as mutual funds, fixed deposits, and wealth management, to
help individuals plan for retirement, save for long-term goals, and grow
their wealth through investment opportunities.


Financial Advice: Banks employ financial advisors who can provide
guidance on budgeting, investment strategies, and retirement planning,
helping individuals make informed financial decisions.


Overall, banks serve as financial intermediaries that offer a wide range of

services to help individuals manage their money, transact efficiently, access
credit when needed, and work toward their financial objectives. They play a
fundamental role in modern economies by providing the infrastructure and
expertise necessary to support individuals in their financial lives.

Q.6. Write a short notes on

1 RRB
Regional Rural Banks (RRBs) are financial institutions in India that were
established to serve the banking and credit needs of rural and semi-urban areas.
RRBs were introduced as a part of the government's efforts to promote financial
inclusion and provide banking services to the rural population. Here are some key
points to note about RRBs:

Origins: RRBs were first established in India in 1975, following the

recommendations of the Narasimham Committee. They were created by the
Government of India and the respective State Governments to bridge the gap in
banking services in rural regions.

Ownership: RRBs are jointly owned by the Government of India, the concerned
State Government, and a sponsor bank (usually a nationalized bank or a major
commercial bank). The ownership structure varies, but the central government
and the sponsor bank typically hold the majority of shares.
Objective: The primary objective of RRBs is to provide banking and financial
services to rural and semi-urban areas, with a focus on agricultural credit and
rural development. They aim to promote financial inclusion, support rural
economic activities, and reduce the dependence on informal credit sources.
Service Area: RRBs typically have a designated service area consisting of
specific rural and semi-urban regions. They are expected to cater to the banking
needs of the population within their service area.

Products and Services: RRBs offer a range of financial products and services,
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including savings and current accounts, fixed deposits, recurring deposits,
agricultural loans, crop loans, livestock loans, and loans for rural infrastructure
development. They also participate in government-sponsored rural development
programs.
Financial Inclusion: RRBs have played a crucial role in promoting financial
inclusion by extending banking services to remote and underserved areas. They
often establish branches and banking outlets in villages and provide banking
services to marginalized and economically weaker sections of society.
Regulation: RRBs are regulated by the Reserve Bank of India (RBI) and are
subject to the same banking regulations and prudential norms as other banks in
India. RBI monitors their operations to ensure financial stability and adherence to
regulatory guidelines.
Consolidation: Over the years, there have been efforts to consolidate RRBs to
improve their efficiency and financial viability. These mergers aim to create larger
and more robust institutions better equipped to serve their target areas
effectively.
Challenges: RRBs face several challenges, including issues related to financial
viability, governance, and the need to balance their social objectives with
financial sustainability. Nevertheless, they remain a critical component of India's
rural banking landscape.
In summary, Regional Rural Banks (RRBs) are an important part of India's efforts
to promote financial inclusion and provide banking services to rural and semi-
urban populations. They have made significant contributions to rural
development and played a crucial role in extending banking services to
underserved areas.

2 Cooperative banks
Cooperative Banks are financial institutions that operate on the principles of
cooperation and are owned, controlled, and operated by their members. These
banks are typically smaller in scale compared to commercial banks but play an
essential role in serving specific communities or groups. Here's a short note on
cooperative banks:

Key Features of Cooperative Banks:

Ownership Structure: Cooperative banks are owned and controlled by their

members, who are also their customers. Members have voting rights in the
bank's decision-making processes, usually on a one-member-one-vote basis,
regardless of the size of their deposits or investments.

Customer-Focused: Cooperative banks prioritize the financial needs and

interests of their members. They often focus on serving specific communities,
professions, or groups, such as agricultural cooperatives, housing cooperatives,
or urban cooperative banks.
Local and Community-Centric: Many cooperative banks have a strong local
presence and are deeply rooted in the communities they serve. This enables
them to understand the unique financial requirements of their members and
tailor their services accordingly.
Mission of Financial Inclusion: Cooperative banks often aim to promote
financial inclusion by providing banking services to underserved and
economically weaker sections of society. They work towards improving access to
credit, savings, and other financial services for marginalized populations.
Range of Services: Cooperative banks offer a variety of financial products and
services, including savings accounts, current accounts, fixed deposits, loans, and
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payment services. Some may also provide insurance and investment products.

Profit-Sharing: Cooperative banks operate on the principle of profit-sharing. Any

surplus generated is typically distributed among members in proportion to their
financial participation, such as the interest paid on savings deposits or dividends
on shares.
Regulation: In many countries, cooperative banks are subject to regulatory
oversight by the central bank or financial regulatory authorities. This oversight is
designed to ensure the stability and integrity of these banks.
Social Objectives: Cooperative banks often have social and community
development objectives alongside their financial goals. They may engage in
initiatives like funding local projects, supporting education, and contributing to
social welfare.
Cooperative Principles: Cooperative banks adhere to a set of guiding
principles, including voluntary and open membership, democratic member
control, member economic participation, autonomy and independence, education
and training, cooperation among cooperatives, and concern for the community.
Challenges: Cooperative banks may face challenges related to financial
sustainability, governance, and regulatory compliance. Balancing the interests of
members with the need for sound financial practices can be a delicate task.

3 The history of banks in India

The history of banking in India is both ancient and complex, with a legacy that
spans thousands of years. Here's a brief overview of the key milestones in the
history of banks in India:

Ancient Roots: Banking practices in India can be traced back to ancient times,
with evidence of money lending and banking activities found in texts like the
Arthashastra and Manusmriti. These practices were often managed by indigenous
bankers and moneylenders.

Indigenous Banking: Indigenous banking systems, including the "shroffs" and

"sowkars," operated in various parts of the country. They provided financial
services, including lending and deposit-taking, to the local population.

Medieval Era: During the medieval period, Islamic and Mughal rulers introduced
the concept of "hundis" and "sarrafs," which functioned as early forms of bills of
exchange and banking instruments.
European Influence: The arrival of European trading companies, such as the
British East India Company and Portuguese and Dutch merchants, led to the
establishment of the first European banks in India. The Bank of Hindostan (1770)
and the General Bank of India (1786) were among the early European-style
banks.
Imperial Bank of India: In 1921, the British colonial government amalgamated
three presidency banks (Bank of Bombay, Bank of Madras, and Bank of Bengal)
into the Imperial Bank of India. This marked the beginning of a centralized
banking system in British India.
Reserve Bank of India (RBI): The Reserve Bank of India was established in
1935 as the central bank of the country. It was nationalized in 1949, and since
then, it has played a crucial role in regulating and supervising India's banking and
monetary system.
Post-Independence Banking Reforms: After India gained independence in
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1947, the government implemented significant banking reforms to strengthen the
banking sector and expand its reach. This included the nationalization of major
banks in two phases (1969 and 1980).

Nationalization of Banks: In 1969, the government nationalized 14 major

banks to ensure that banking services reached rural and underserved areas and
that the credit needs of priority sectors like agriculture and small-scale industries
were adequately met. In 1980, six more banks were nationalized.
Liberalization and Private Banks: In the early 1990s, India initiated economic
reforms, liberalizing the banking sector and allowing the entry of private and
foreign banks. This led to the establishment of numerous private sector banks
and the expansion of foreign banks in the Indian market.
Digital Revolution: In recent years, India has witnessed a digital banking
revolution, with the widespread adoption of online and mobile banking, the
development of the Unified Payments Interface (UPI), and the promotion of
financial inclusion through initiatives like Jan Dhan Yojana.
Today, India's banking sector is diverse, with a mix of public sector banks, private
sector banks, foreign banks, cooperative banks, and regional rural banks. It plays
a critical role in supporting the country's growing economy and promoting
financial inclusion among its vast and diverse population.

Q, 7 Write the full form of NABARD and what role does it play in the economy.
The full form of NABARD is the National Bank for Agriculture and Rural
Development. NABARD is a specialized financial institution in India that plays a
significant role in the development of the agricultural and rural sectors. It was
established on July 12, 1982, by an act of the Indian Parliament.

Role of NABARD in the Indian Economy:

Agricultural and Rural Credit: NABARD provides refinance and credit support
to various financial institutions, including regional rural banks (RRBs), cooperative
banks, and commercial banks, to ensure that adequate credit is available for
agriculture and rural development. It promotes the flow of credit to farmers,
agricultural activities, and rural enterprises.

Rural Infrastructure Development: NABARD plays a crucial role in funding

and promoting rural infrastructure projects. It provides financial assistance for the
construction of roads, bridges, irrigation systems, and other essential rural
infrastructure that enhances agricultural productivity and overall rural
development.

Promotion of Self-Help Groups (SHGs): NABARD supports the formation and

strengthening of Self-Help Groups (SHGs) in rural areas. It provides financial
assistance and capacity-building programs to SHGs, particularly women's groups,
to enable them to save, access credit, and engage in income-generating
activities.
Microfinance and Financial Inclusion: NABARD promotes microfinance
institutions (MFIs) and supports their efforts to provide small loans to rural and
marginalized populations. It also focuses on enhancing financial literacy and
inclusion in rural areas, helping people access formal financial services.
Agricultural and Rural Research: NABARD funds research and development
projects related to agriculture, rural development, and rural livelihoods. It
supports initiatives that aim to improve agricultural practices, technology
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adoption, and rural income generation.

Rural Development Initiatives: NABARD collaborates with state governments,

non-governmental organizations (NGOs), and other stakeholders to implement
various rural development programs and initiatives. It provides financial
assistance and technical support for these projects.
Monitoring and Evaluation: NABARD plays a monitoring and evaluation role in
assessing the impact and effectiveness of rural development programs and
schemes. It ensures that funds are used efficiently and effectively for rural
development.
Sustainable Agriculture and Environmental Conservation: NABARD
encourages sustainable agricultural practices and environmental conservation by
promoting activities such as organic farming, watershed development, and
afforestation.
Promotion of Cooperatives: NABARD supports the development and
strengthening of agricultural cooperatives, which play a pivotal role in rural credit
and marketing activities. It provides financial assistance and capacity-building
programs for cooperatives.
Overall, NABARD plays a pivotal role in the Indian economy by focusing on the
development of the agricultural and rural sectors. It facilitates the flow of credit,
promotes rural infrastructure development, supports rural livelihoods, and
contributes to the overall economic growth and well-being of India's rural
population.

Q.8 Give the full form of EXIM bank. What function does it perform.
The full form of EXIM Bank is the Export-Import Bank of India. EXIM Bank is a
specialized financial institution in India that primarily focuses on promoting
international trade and facilitating the export and import of goods and services.
Here are the main functions and roles performed by EXIM Bank:

Export Financing: EXIM Bank provides financial assistance, including pre-

shipment and post-shipment credit, to Indian exporters. This helps exporters
meet their working capital requirements, fulfill export orders, and compete
effectively in international markets.
Import Financing: The bank offers financial products and services to importers,
helping them arrange trade finance and credit facilities to facilitate the import of
goods and services into India.
Export Credit Insurance: EXIM Bank offers export credit insurance to protect
exporters against payment risks arising from foreign buyers' default or other
unforeseen events. This insurance enhances the confidence of Indian exporters in
exploring new markets.
Export Promotion: EXIM Bank plays an active role in promoting Indian exports
by participating in trade exhibitions, facilitating market research, and providing
information and advisory services to exporters. It helps Indian businesses identify
export opportunities and expand their reach in international markets.
Project Export Finance: The bank extends financial support to Indian
companies engaged in project exports, enabling them to take on overseas
projects in sectors like infrastructure, construction, and consultancy services.
Overseas Investment: EXIM Bank provides financial assistance to Indian
companies for overseas investments and acquisitions. This helps Indian
businesses expand globally and enhance their competitiveness.
Lines of Credit: EXIM Bank collaborates with foreign governments and
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institutions to offer lines of credit (LOCs) to facilitate export-import transactions
between India and other countries. These LOCs often support infrastructure
development and trade promotion projects.

Trade Finance Services: The bank offers various trade finance services,
including letters of credit (LCs), bank guarantees, and documentary collections,
to facilitate secure and smooth international trade transactions.
Export and Trade Data: EXIM Bank collects and disseminates information
related to export and trade data, market trends, and trade policies to assist
Indian businesses in making informed decisions.
International Cooperation: EXIM Bank collaborates with international financial
institutions and development banks to strengthen economic ties and promote
trade relations between India and other countries.
Research and Analysis: The bank conducts research and analysis on global
trade trends, trade finance, and economic developments to provide valuable
insights to Indian exporters and importers.
In summary, the Export-Import Bank of India (EXIM Bank) plays a critical role in
facilitating international trade, supporting Indian exporters and importers, and
promoting economic growth by providing financial and advisory services related
to cross-border transactions. It contributes significantly to India's global trade
efforts and the expansion of Indian businesses in international markets.

Q.9 Write difference between RTGS and NEFT

RTGS (Real-Time Gross Settlement) and NEFT (National Electronic Funds Transfer)
are two electronic fund transfer systems used for interbank transactions in India.
While both systems facilitate the transfer of funds from one bank to another, they
have some key differences:

Settlement Timing:

 RTGS: RTGS operates on a real-time basis, which means that transactions

are processed and settled immediately, as soon as they are initiated during
the working hours of the respective bank. RTGS operates in real time, and
transactions are settled individually as they occur.
 NEFT: NEFT, on the other hand, operates in hourly batches during the
working hours of the bank. There are specific settlement windows or
batches throughout the day when NEFT transactions are processed.
Transactions initiated outside these windows are queued for processing in
the next available batch.
Transaction Amount:

 RTGS: RTGS is primarily used for high-value transactions. There is typically

a minimum threshold amount (which varies) for initiating an RTGS
transaction.
 NEFT: NEFT is used for both small and large transactions. It is more
suitable for retail transactions, including individual and business payments.
Transaction Speed:

 RTGS: RTGS transactions are settled in real time, providing almost

instantaneous transfer of funds. It is the fastest interbank fund transfer
system available in India.
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NEFT: NEFT transactions may take some time to settle, depending on the
specific batch in which they are processed. While NEFT is not as immediate
as RTGS, it is still a relatively quick method for fund transfers.
Operating Hours:

 RTGS: RTGS operates during the working hours of banks on weekdays

(Monday to Friday) and on the first and third Saturdays of the month. It is
closed on Sundays and bank holidays.
 NEFT: NEFT operates during the working hours of banks on all weekdays
(Monday to Friday), and it is also available on Saturdays. NEFT remains
closed on Sundays and bank holidays.
Charges:

 RTGS: RTGS transactions typically have higher charges compared to NEFT

transactions. The charges may vary depending on the amount and the
bank's policy.
 NEFT: NEFT transactions are usually more cost-effective, with lower
charges compared to RTGS. The charges may also vary by the bank.
Transaction Minimum and Maximum Limits:

 RTGS: There is often a minimum and maximum limit for RTGS transactions,
depending on the bank's policy. These limits are typically higher compared
to NEFT.
 NEFT: NEFT transactions also have minimum and maximum limits, which
may vary from bank to bank, but they are usually lower compared to RTGS.

In summary, while both RTGS and NEFT are electronic fund transfer systems used
for interbank transactions in India, they differ in terms of settlement timing,
transaction amounts, speed, operating hours, charges, and transaction limits.
RTGS is suitable for high-value, time-sensitive transactions, while NEFT is more
versatile and widely used for various types of fund transfers, including retail
payments.

Q.1 What do you mean by in-principle licence given by RBI and how is it important.
0
An "in-principle license" issued by the Reserve Bank of India (RBI) refers to a conditional
approval or preliminary approval granted to an entity or institution to operate in a regulated
financial sector, subject to fulfilling certain conditions and requirements specified by the RBI.
This is typically seen in the context of granting licenses for activities like setting up new
banks or non-banking financial companies (NBFCs).

Here's how the process generally works and why it's important:

Application and Screening: When an entity applies for a license to operate as a bank or
NBFC, the RBI evaluates the application based on various criteria, including the entity's
financial stability, governance structure, compliance with regulatory norms, business plan,
and its ability to meet the needs of the sector it wishes to enter.

Conditional Approval: If the RBI finds the application to be generally compliant with its
requirements but with some conditions that need to be met before granting a full-fledged
license, it may issue an "in-principle approval" or "in-principle license." This means the entity
is provisionally approved to set up a bank or NBFC but must fulfill certain conditions within a
specified period.

Conditions and Timelines: The RBI sets specific conditions that the entity must meet,
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which could include capital adequacy requirements, governance standards, infrastructure
development, and other regulatory compliance. The entity is given a timeline to meet these
conditions.

Due Diligence and Final Approval: During the period when the entity works to fulfill the
conditions, the RBI conducts a more detailed due diligence process. If, at the end of this
period, the entity successfully meets all the conditions and satisfies the RBI's concerns, it
may be granted a full license to operate.

The importance of the in-principle license lies in the fact that it allows entities to move
forward with their plans while still subject to regulatory oversight and compliance. Here are
some reasons why it is significant:

Investor and Stakeholder Confidence: The issuance of an in-principle license by the RBI
signals that the regulator has confidence in the entity's potential to operate in the regulated
sector. This can boost investor confidence and attract capital.

Operational Preparations: The entity can begin preparations for its operations, including
hiring staff, establishing infrastructure, and developing necessary systems and processes,
knowing that it has provisional approval from the RBI.

Market Entry: For entities seeking to enter the banking or financial services market, the in-
principle license provides them with a competitive edge and a head start in entering the
market as they work toward fulfilling the conditions.

Regulatory Oversight: While the entity operates under the in-principle license, it remains
under regulatory oversight and scrutiny. This ensures that the entity adheres to the
stipulated conditions and maintains the necessary standards of compliance.

Stakeholder Engagement: It allows the entity to engage with stakeholders, including

customers, partners, and regulatory authorities, demonstrating its commitment to entering
the sector.

In conclusion, an in-principle license issued by the RBI is a significant step in the process of
obtaining regulatory approval to operate in the financial sector. It provides provisional
approval to entities while ensuring they meet specified conditions and regulatory
requirements, ultimately enhancing confidence and facilitating their entry into the sector.

Q.1 Name the first two organizations which got licence to do banking business.
1
The first two organizations to receive licenses to conduct banking business in
India were:

Bank of Hindostan: Established in 1770 in Calcutta (now Kolkata), the Bank of

Hindostan is considered one of the earliest banks in India. It was founded by
Alexander and Company, a British agency house involved in trade and banking in
India. The Bank of Hindostan issued its own currency notes and provided banking
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services primarily to British merchants and traders.

General Bank of India: The General Bank of India was founded in 1786 in
Bombay (now Mumbai). It was another early banking institution in India and was
established with the primary purpose of financing general trade and commerce.
Like the Bank of Hindostan, it also issued its own banknotes.

Both of these banks operated during the colonial period and were instrumental in
facilitating trade and financial transactions in India during that era.